Freeserve threatens to move operation to Algeria

AOL UK VAT exemption gets the goat

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Freeserve is prepared to move its Internet operation to North Africa unless a tax loophole that saves AOL UK £30 million a year is closed.

The boss of Britain's biggest ISP told The Register that he is due to meet with Customs and Excise officials next week to discuss VAT eligibility.

And unless John Pluthero is convinced that Customs and Excise will move swiftly to resolve the issue, he is prepared to move his servers to Algeria.

Then Freeserve would demand the same VAT exemption as currently enjoyed by AOL UK.

"Wanadoo [the parent company of Freeserve] already has operations in Morocco and Algeria - it would be very easy for us to do," he said.

Pluthero's comments follow a report on the European ISP market published yesterday by Merrill Lynch which points out that it is "not well known that AOL does not pay VAT in the UK".

The report continues: "The reason for this is that the AOL service is provided from outside the UK. In other words, AOL gets to keep 100 per cent of its subscription revenues instead of giving back the 17.5 per cent VAT charge that other ISPs like Freeserve remit to tax authorities. This has some beneficial valuation implications for AOL, just as it impacts Freeserve negatively."

Not surprisingly Freeserve jumped on the report and has written to the British Government demanding a change to the rules which it says disadvantages UK business.

Despite singling out AOL UK, Pluthero says his "beef is with the Government, not AOL".

"If I had been in their position I would have done exactly the same thing," he said.

AOL UK has played down the story maintaining that it complies with Customs & Excise rules.

In a statement it said: "AOL complies fully with all applicable laws in all territories in which it operates. In the UK, AOL is subject to the relevant UK tax authorities. Since the AOL service was first made available in the UK in 1996, those authorities have recognised that the hub of AOL's global network is based in the US.

"The UK tax authorities have ruled that AOL is a provider of information services from outside the European Union - a status available to any other similarly positioned service provider," it said. ®